Information, Technology, and Innovation: Resources for Growth in a Connected World

CHAPTER 16

Data and Communications

The business model for U.S. telephony has undergone not one but a complex series of disruptions in the past 15 years. Technological innovation was certainly a factor, but demographics, regulation, and organizational dynamics both inside and around the carriers also played their parts in the drama. With anything so vast, old, and technologically complex, it is impossible to summarize without losing important facets that often are the subject of book-length monographs in and of themselves. One example was the carriers' yellow-pages publishing business. In many ways the forerunner to Google, commercial telephone directories were a $14 billion business in 1995, bigger than the entire recording industry. Furthermore, unlike newspapers (roughly $50 billion in 2000) or music, the telecommunications sector is a sprawling, regulated, but rapidly evolving complex that is particularly difficult to change. In addition to being complicated, telecommunications companies are big, representing about 3% of the global economy.

Evolution of the Incumbent Business Model, 1877–1996

From the founding of the Bell Telephone Company, the U.S. telecommunications sector has been characterized by a combination of technological innovation (much of it still relating to Alexander Graham Bell's master patent, #174465) and creative, intensive capital formation. Once Bell Telephone was bought by AT&T in 1899, it enjoyed essentially monopoly status. Indeed, a key feature of the ...